“We’re just about to the start line of expansion,” said Chris Hurt, a professor of agricultural economics at Purdue University in West Lafayette, Indiana. “Nothing like making money to keep producers interested in expansion.”
The drop in corn costs will also limit gains in hog and pork prices, curbing the incentive for boosting output, said Mark Greenwood, who oversees $1.4 billion of loans and leases to the hog business as a vice president at AgStar Financial Services Inc. in Mankato, Minnesota.
Hedge funds and other large speculators expanded bets on higher hog prices for 14 consecutive weeks by July 9 and are the most bullish since December 2011, U.S. Commodity Futures Trading Commission data show.
Demand for pork is growing in China, the biggest consumer, as middle-class incomes rise. Shuanghui International Holdings Ltd., based in Hong Kong, agreed in May to acquire Smithfield, the world’s largest producer, for $4.7 billion. U.S. output also may be limited by porcine epidemic diarrhea virus, which the U.S. has found in 16 states since April.
The rebound in grain supplies may trigger herd expansions over several years, said Purdue’s Hurt. Producers broke even in the three months ended June 30, ending losses that averaged $28 a head from the third quarter of 2012 through March 31, he said.
For farmers who didn’t hedge their production, losses probably averaged $33 an animal from August through May, said Shane Ellis, an agricultural economic specialist at Iowa State University in Carroll, Iowa. That would indicate a combined industry loss of $3 billion based on cash prices and the number of hogs sold, he said.
Next year, profit may average $10-$15 a head for most farmers who hedge their price risk, AgStar’s Greenwood said.